What kind of financing can I apply for in Singapore?

It’s well-known that most startups fail within their first few years, mainly due to an inability to access funds for their business activities. You can apply for several sources of funding in Singapore.

What is equity fundraising?

Simply put, equity financing is when someone gives you money because he/she believes that your business has great potential. Essentially, this means that what you pay to your investors in the form of dividends on shares is typically lower than interest rates you would pay to service a bank loan (called debt financing).

A possible disadvantage is, if your company earns high profits, you will be paying out a total amount of dividends on these investments that are a greater value than the interest amounts you would pay on a fixed bank loan (that is independent of how much profit your business makes)

However, if the company does not make profits then equity financing becomes less of a financial liability upon the company given that you are not obliged to pay your investors if there are no profits (versus having to still pay the bank back for the loan you took). Equity fundraising is preferable because the investors bear the investment risks of the company failing. They will lose the money that they invested in that company.

Finally, private equity funding is an attractive source of start-up funding especially for companies that lack the burdensome collateral or credit-worthiness to leverage large.

To have a good chance of securing equity capital in Singapore, you need to show your potential investors that you have a watertight and comprehensive business plan, clear exit strategies, reasonable and prudent financial projections, an experienced go-getting management team, as well as strong growth potential. Otherwise, you will have to seek other sources of funding like from venture capitalists, business angel investors, banks, investment companies/funds or financial institutions.

What are angel investors?

Angel investors are private investors who typically not only invest capital but also contribute their business expertise/skills in early-stage businesses in exchange for a significant share in the company. They can be individuals, or be part of an angel network that engage in investing in businesses with high growth potential and in the industries that they are familiar with. That said, there are some business angels playing active roles in the business while others act as sleeping partners.

Angel investors are typically wealthy HNWIs or successful businessmen with an appetite for start-up companies with higher risk (but that are promising enough to yield higher returns), therefore your start-up should have high growth potential in order to win their favour.

The quantum that individual business angels invest lie between S$25K to S$100K, while angel groups invest much larger sums in the range of S$250K to S$750K. It has been shown that business angels in Singapore tend to invest in the business service, retail and hospitality sectors.

Angel investor networks like the Business Angel Network Southeast Asia (BANSEA) exist to match start-ups in the seed stage of enterprise formation with business angels. BANSEA invests in companies that offer exceptional opportunities for high returns on investment, which usually involves early-stage ventures with high growth potential, either in a developing market (especially in emerging markets) or in an existing market with international expansion capabilities, and that are sustainable in the long-run.

What are private funds?

Private funds like banks, financial institutions, and investment companies are very rarely involved in actively managing the business (thus, giving you the autonomy of conducting your own affairs in the manner you deem best) as their main purpose is to receive an attractive return (usually in the form of high interest from 7-12%) on their investment. Thus, businesses that are already established, have a good credit track record, are already generating revenue in high amounts, and have high growth potential would benefit from such sources, and not start-ups in early-stage growth. In Singapore, however, there are micro loan programmes instituted by the Singapore government under the auspices of Spring Singapore and IE Singapore that facilitate your taking of small loans from participating financial institutions like UOB, OCBC, DBS, Standard Chartered banks.